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Gross fixed capital formation

15.10 Gross fixed capital formation is the value of acquisitions less disposals of new or existing fixed assets. Assets consist of tangible or intangible assets that have come into existence as outputs from processes of production, and that are themselves used repeatedly or continuously in other processes of production over periods of time longer than one year.

15.11 The acquisition of non-reproducible tangible assets such as land, subsoil assets and natural timber tracts is not included in gross fixed capital formation. However, capital costs associated with the extension or development of these assets are included, as are outlays on land reclamation and improvement. Expenditure associated with the improvement and alteration of durable assets which significantly extend their productive life is also included, but ordinary repairs and maintenance expenses are not.

15.12 Previously, outlays by the general government sector on durable goods for military use were excluded from gross fixed capital formation and included in government final consumption expenditure on the grounds that their future productive capacity was uncertain. SNA93 recommends that certain defence expenditure be treated instead as gross fixed capital formation. Expenditures to be treated in this way include construction of buildings, roads, bridges, airfields, docks, etc. for military use. Transport equipment, communications equipment and computers are also to be capitalised provided they are not part of weapons or weapons delivery systems. They meet the definition of assets and capital formation as they produce services for a period of more than one year and they are used continuously and repeatedly in production. Furthermore, they are used in a fashion similar to civilian assets and could conceivably be switched from military to civilian use. In some countries these facilities are used for both military and civilian purposes. Expenditures on weapons of destruction and weapon delivery systems continue to be regarded as government final consumption expenditure. This includes rockets, missiles, warheads (and their means of delivery), warships, submarines, fighter aircraft, bombers and tanks.

15.13 SNA93 recommends that livestock be included in gross fixed capital formation or work-in-progress (changes in inventories), depending on an animal's role in production. Breeding stock, dairy cattle and sheep raised for wool are to be capitalised; animals raised for food are to be treated as work-in-progress until slaughtered. This recommendation follows on from that in SNA68; however, it was not previously implemented in the ASNA. Australia's previous treatment was to include livestock in production only when slaughtered or exported live. SNA93 recommendations are now fully implemented for cattle and sheep. All sheep raised for wool, dairy cattle and own-account breeding stock (i.e. rams, ewes, bulls and cows), are included as acquisitions of fixed assets as they grow to maturity, and subtracted as disposals when eventually slaughtered or otherwise disposed of. Bulls produced for sale are included as work-in-progress until sold, at which time they are deducted from the inventories of the seller and included as acquisitions of fixed assets of the purchaser. All capitalised animals that are slaughtered are added to the stock of finished goods when killed. All other sheep and cattle are included as work-in-progress and output as they grow, and are converted to finished goods when slaughtered. It should be noted that the full range of animals is included in the level of fixed assets and inventories shown in the balance sheet of the ASNA, but it has not yet been possible to adopt a fully consistent treatment in the flow accounts for animals other than cattle and sheep.

15.14 Conventions have been adopted in the ASNA in areas where boundary problems arise. Some significant cases are as follows:

• Work put in place on structures (including dwellings, roads, dams, ports and other forms of construction) is considered to be gross fixed capital formation of the unit for which the construction is being carried out, at the time the work is put in place. On the other hand, work on uncompleted heavy machinery and equipment (such as shipbuilding) during an accounting period is included as part of inventories of work in progress of the producer of the goods.

• Expenses associated with the transfer of real estate (real estate agents' commissions, lawyers' fees and government taxes and charges) are included in gross fixed capital formation.

• Dwellings comprises houses and other dwellings (flats, home units, villa units, duplexes, mobile homes, caravans used as the principal residences of households, etc.). Expenditure on the construction of hostel-type accommodation, prisons and motels is included in Other buildings and structures.

• Other buildings and structures covers such assets as industrial, commercial, and non-dwelling residential buildings; water and sewerage installations; lifts, heating, ventilating and similar equipment forming an integral part of buildings and structures; land development; roads; bridges; wharves; harbours; railway lines; pipelines; and power and telephone lines. The category also includes expenditures that lead to major improvements in the quantity, quality or productivity of land, or prevent its deterioration.

• Machinery and equipment includes vehicles; aircraft; ships; electrical apparatus; office equipment; furniture, fixtures and fittings not forming an integral part of buildings or structures; durable containers; special tooling, etc.

• Cultivated assets covers livestock (cattle and sheep) that are used repeatedly or continuously to produce products such as milk, wool etc., or are used as breeding stock. Gross fixed capital formation in livestock is equal to the total value of all mature animals and immature animals produced on own account by users of the livestock, less the value of their disposals. Disposals consist of animals sold or otherwise disposed of, including those sold for slaughter, plus those animals slaughtered by their owners.

• Ownership transfer costs comprises the various fees which are incurred by either the buyer or seller of real estate, namely legal fees on transfer, real estate sales commissions, stamp duties on transfer and other government charges. The value of work performed 'in house' (e.g. conveyancing performed by an enterprise's own legal staff) is excluded. It should be noted that estimates of ownership transfer costs are not separately identified for the public sector. In any event, transfer expenses of public authorities are relatively insignificant because the majority of public authorities are exempt from stamp duty, they frequently use their own staff to undertake the associated legal work and they make only limited use of real estate agents.

• Computer software covers both purchased software and software developed in-house. Gross fixed capital formation also includes the purchase or development of large databases that the enterprise expects to use in production over a period of more than one year.

• Entertainment, literary or artistic originals comprises the originals of films, sound recordings, manuscripts, tapes, models, etc. on which drama performances, sporting events, literary and artistic output etc. are recorded or embodied.

• Mineral exploration comprises all mineral exploration expenditure, undertaken on land and in Australia's territorial waters and the continental shelf over which Australia exercises exclusive rights, regardless of whether or not the exploration was successful. Mineral exploration is undertaken in order to discover new deposits of minerals or fuels that may be exploited commercially. Expenditures included in gross fixed capital formation include the cost of test drilling and boring, aerial surveys and transportation costs.